EFSF, EIB, EU funding on CreditWatch at S&P

Standard & Poor’s is reviewing its ratings of European multilateral lending institutions in light of changes to ratings on individual country debt.

In a note titled Credit FAQ: Factors Behind Our Rating Actions On Eurozone Sovereign Governments, the rating agency explained why it was broadening the scope of its review:

“Following our placement of the ratings on the eurozone sovereigns on CreditWatch in December, we also placed a number of supranational entities on CreditWatch with negative implications. These included, among others, the European Financial Stability Fund (EFSF), the European Investment Bank (EIB), and the European Union’s own funding program. We are currently assessing the credit implications of today’s [13 January] eurozone sovereign downgrades on those institutions and will publish our updated credit view in the coming days.”

The European Financial Stability Facility relies on the bond market to raise funds, which it then uses to lend to countries in financial difficulty. It is backed by guarantee commitments from eurozone member states totalling €780bn, with a lending facility of €440bn.

The EFSF currently has a AAA rating from S&P and Fitch Ratings, and Aaa from Moody’s.

The European Investment Bank is the EU’s financing institution, which has the backing of all 27 member states, not just the eurozone members.

According to the EIB website, the institution approved over €83bn in projects in 2010. Its balance sheet total at the end of 2010 was almost €420bn. It too relies on borrowing from capital markets in order to fund its activities.